The Florida Bar

Florida Bar Journal

Understanding the New Federal Health Care Fraud Legislation

Criminal Law

The Health Insurance Portability and Accountability Act of 1996, Public Law 104-191, contains many provisions of interest to white collar criminal defense lawyers, health care lawyers, and transactional attorneys. Although the Act was signed into law on August 21, 1996, many of its provisions only became effective January 1, 1997. This article summarizes the key sections of Public Law 104-191.

New Criminal Statutes

Subtitle E of the Act created five new criminal statutes effective January 1, 1997. Four of these new statutes use the term “health care benefit program” which is defined broadly in §241 as “any public or private plan or contract, affecting commerce, under which any medical benefit, item, or service is provided to any individual, and includes any individual or entity who is providing a medical benefit, item, or service for which payment may be made under the plan or contract.”1 Accordingly, a private insurance plan or insurance contract under which medical services, benefits, or items can be provided constitutes a “health care benefit program” under §241 and the new criminal statutes.

Section 242 established a new federal health care fraud offense which prohibits knowingly and willfully executing or attempting to execute a scheme or artifice to defraud “any health care benefit program” or to fraudulently obtain money or property of such programs in connection with the delivery of or payment for health care benefits, items, or services.2 This offense is clearly patterned after the bank fraud statute,3 which in turn was based on the mail and wire fraud statutes.4 The maximum sentence is 10 years imprisonment, unless the violation results in serious bodily injury, in which case the maximum sentence rises to 20 years, or results in death, in which case the maximum sentence is life imprisonment. The benefit of this new health care fraud scheme offense to federal prosecutors is that it permits an entire scheme to be described in an indictment where no conspiracy or mail/wire fraud scheme is charged. It will also permit fraudulent intrastate electronic billings to private insurers to be prosecuted that could not have been presented under the wire fraud statute, which requires proof of an interstate wiring.

Section 243 created a new theft or embezzlement crime which prohibits knowingly and willfully embezzling, stealing, intentionally misapplying, or otherwise without authority converting any of the money, property, premiums, or other assets of a health care benefit program.5 The maximum sentence is 10 years imprisonment, unless the value of the property taken does not exceed $100 in which case the maximum sentence is one year. The benefit of this new offense to federal prosecutors is that it permits thefts or embezzlements to be charged which do not meet the jurisdictional requirements under 18 U.S.C. §666, the existing statute which prohibits theft or embezzlement of $5,000 or more from an organization or agency which receives more than $10,000 of federal funds per year.

Section 244 established a new false statement offense which prohibits, in any matter involving a health care benefit program, knowingly and willfully 1) falsifying, concealing, or covering up a material fact by any trick, scheme, or device; 2) making any materially false, fictitious, or fraudulent statements or representations; or 3) making or using any materially false writing or document knowing that writing or document to contain any materially false, fictitious, or fraudulent statement or entry, in connection with the delivery of or payment for health care benefits, items, or services.6 The maximum sentence is five years imprisonment. The benefit of this new false statement offense to federal prosecutors is that it covers statements and concealments made to private insurers which could not be prosecuted under 18 U.S.C. §1001, the existing statute which prohibits false statements to federal agencies.

Section 245 created a new obstruction crime which prohibits willfully obstructing, preventing, misleading, or delaying, or attempting to do so, the communication of information or records relating to a violation of a federal health care offense to a criminal investigator.7 The term “criminal investigator” is defined to mean “any individual duly authorized by a department, agency, or armed force of the United States to conduct or engage in investigations for prosecutions for violations of health care offenses.” The benefits to federal prosecutors of this new obstruction offense are that it does not have the “by means of bribery” requirement contained in the general obstruction of criminal investigations statute,8 and also is not limited to “official proceedings,” as is the general witness tampering statute.9

Section 217 established a new federal crime which prohibits knowingly and willfully disposing of assets, including by any transfer in trust, in order for an individual to become Medicaid-eligible, if disposing of such assets results in the imposition of a period of ineligibility for Medicaid assistance under §1917(c) of the Social Security Act.10 The maximum sentence for this offense is imprisonment for one year.

Criminal Statutes

In addition to creating five new federal crimes specifically concerning health care fraud, the Act also expanded existing money laundering, asset forfeiture, and fraud injunction statutes to cover “Federal health care offenses.” As defined by §241,11 The term “Federal health care offense” means a violation of, or a criminal conspiracy to violate, any of the new health care fraud, theft/embezzlement, false statement, and obstruction crimes discussed above or the existing statutes prohibiting false claims,12 conspiracy,13 Theft or embezzlement from employee benefit plans,14 Theft or bribery concerning programs receiving federal funds,15 false statements,16 false statements in ERISA documents,17 mail fraud,18 wire fraud,19 and ERISA bribery20 if the violation or conspiracy relates to a health benefit program.

Section 246 expanded the scope of “specified unlawful activity” forming the predicate for a money laundering violation under 18 U.S.C. §1956 to include “any act or activity constituting an offense involving a Federal health care offense.” Similarly, §249 amended the criminal forfeiture statute, 18 U.S.C. §982, by adding a new section stating that “[t]he court, in imposing sentence on a person convicted of a Federal health care offense, shall order the person to forfeit property, real or personal, that constitutes or is derived, directly or indirectly, from gross proceeds traceable to the commission of the offense.” Section 248 also amended the fraud injunction statute, 18 U.S.C. §1345, to permit the United States to file a civil action to enjoin the commission or imminent commission of a federal health care offense and to freeze the assets of persons disposing of property obtained as a result of a federal health care offense.

Changes in the
Anti-Kickback Act

Section 204 amended the Medicare/Medicaid Anti-Kickback Act, 42 U.S.C. §1320a-7b, to expand the coverage of the Anti-Kickback Act from the Medicare and Medicaid programs to other federal health care programs as well. The term “federal health care program” is defined to mean any plan or program that provides health benefits, whether directly, through insurance, or otherwise, which is funded directly, in whole or in part, by the United States, excluding the Federal Employees Health Benefits Program.

Section 216 established a new managed care exception under the Anti-Kickback Act. It allows remuneration between an eligible organization under §1876 of the Social Security Act and a provider pursuant to a written agreement. It also permits remuneration between an organization and a provider if a written agreement places the provider at “substantial financial risk” for the cost or utilization of the services to be provided. The U. S. Department of Health and Human Services (HHS) is required to engage in a negotiated rulemaking process to establish standards for this “risk-sharing” exception or safe harbor. Although the target date for publication of a final rule was January 1, 1997, a final rule has not been issued. However, this “risk-sharing” exception to the Anti-Kickback Act applies to written agreements entered into on or after January 1, 1997, whether or not such regulations have been issued.

Section 231 amended the definitions section of 42 U.S.C. §1320a-7a(i)(6) to add a definition of “remuneration” as used in the Anti-Kickback Act which attempts to distinguish between permissible and impermissible waivers of coinsurance and deductibles. “Remuneration” is defined as including the waiver, or partial waiver, of coinsurance and deductible amounts and the transfer of items or services for free or for less than fair market value. However, “remuneration” is then further defined as not including:

1) Waivers of coinsurance and deductibles if the waiver was not offered as part of any advertisement or solicitation, the provider does not routinely make such waivers, and the waiver was made after the provider determined in good faith that the patient was in financial need or the provider failed to collect the coinsurance or deductible after making reasonable collection efforts.

2) Differentials in coinsurance and deductible amounts as part of a written benefit plan permitted by HHS regulations; and

3) Incentives given to patients to promote the delivery of preventive care as permitted by HHS regulations.

Section 205 substantially changed HHS’s current practice regarding promulgating safe harbor regulations under the Anti-Kickback Act and issuing advisory opinions. Not later than January 1, 1997, and at least annually after that date, HHS is required to publish notices in the Federal Register soliciting proposals to modify existing safe harbors or to create new safe harbors. After considering the proposals submitted, HHS, after consultation with the Attorney General, shall publish any proposed modifications or proposed new safe harbors with a 60-day comment period, to be followed by issuance of the final rules.

Section 205 also requires HHS, in consultation with the Attorney General, to issue written advisory opinions regarding what constitutes prohibited remuneration under the Anti-Kickback Act and whether particular business arrangements constitute criminal violations of the Anti-Kickback Act, grounds for imposition of civil monetary penalties, or grounds for exclusion from the Medicare or Medicaid programs. Advisory opinions would not be provided regarding whether fair market value was paid or received in a particular transaction and whether an individual was a bona fide employee under the definition used by the Internal Revenue Service. These advisory opinions would be binding on HHS and the requesting party.21 However, the failure of a party to seek an advisory opinion could not be introduced into evidence to prove that party’s intent to violate the Anti-Kickback Act.

Not later than 180 days after enactment of the Act
(February 21, 1997), HHS is to issue regulations governing the advisory opinion process. These regulations shall specify the fee to be charged for an opinion, which is to be equal to the costs incurred by HHS in responding to the request, and shall specify that HHS is required to issue a response within 60 days after receiving the request.22 Advisory opinions are to be issued in response to requests submitted between February 21, 1997, and August 21, 2000, the fourth anniversary of the enactment of the Act.

New Investigative
Demand Procedures

Section 248 created a new statute, 18 U.S.C. §3486, which provides administrative subpoena authority for Department of Justice investigations relating to “any act or activity involving a Federal health care offense.” This investigative demand must be issued by the Attorney General or the Attorney General’s designee and can require testimony by a custodian of records concerning the production and authentication of subpoenaed records. However, records subpoenaed under this statute cannot be required to be produced at any place more than 500 miles from the place where the subpoena was served.

The investigative demand subpoena may be enforced in federal district court and a failure to comply with an order enforcing a subpoena may be punished as contempt. All persons, including employees, who comply in good faith with this subpoena and produce records sought are immunized from civil liability in both federal and state court “for such production or for nondisclosure of that production to the customer.”

Health information about a person obtained through an investigative demand can be used against that person only in connection with a health care investigation or prosecution, unless authorized by a court order based upon a showing of “good cause.” In determining whether such good cause exists, the court must weigh the public interest and the need for disclosure against the injury to the patient, to the physician-patient relationship, and to the treatment services. The statute also amends 18 U.S.C. §1510 to provide that disclosure of investigative demands by officers of financial institutions is punishable in the same manner as disclosure of grand jury subpoenas.

Section 211 expanded the scope of mandatory exclusion required by 42 U.S.C. §1320a-7(a) to include any individual or entity that has been convicted of 1) an offense under federal or state law in connection with the delivery of a health care item or service; 2) a felony offense relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct with respect to an act or omission in a health care program operated by or financed in whole or in part by any federal, state or local government agency; and 3) a felony offense under federal or state law relating to the unlawful manufacture, distribution, prescription, or dispensing of a controlled substance.

Section 212 established a minimum three-year period of exclusion for permissive exclusions based on convictions for fraud, obstruction, and controlled substances. This three-year period can be increased or decreased depending on aggravating or mitigating circumstances.

Section 213 added new discretionary authority for HHS to permissively exclude 1) individuals who have a direct or indirect ownership or control interest in a sanctioned entity and who knew or should have known of the action constituting the basis for the conviction or exclusion, and 2) individuals who are officers or managing employees of a sanctioned entity.

Expanded Monetary Penalties

Section 231 made several changes to the existing civil monetary penalty provisions of 42 U.S.C. §1320a-7a. First, civil monetary penalties may now be applied in federal health care programs other than the Medicare and Medicaid programs. Second, the civil money penalty amount is increased from $2,000 to $10,000 for each false item or service claimed. Third, the amount of the assessment authorized in lieu of damages is increased from double the amount claimed to triple the amount claimed. Fourth, the level of knowledge required to impose civil monetary penalties is clarified to be “knowingly” and the term “should know” is defined to mean deliberate ignorance or reckless disregard of the truth or falsity of the claims submitted.24

Section 231 also expanded the existing civil monetary penalty provisions to cover four additional types of conduct:

1) Retaining a direct or indirect ownership interest in, or acting as an officer or managing employee of, a provider participating in the Medicare or Medicaid programs by an excluded individual who knew or should have known of the action constituting the basis for his or her exclusion;

2) Engaging in a pattern or practice of presenting, or causing to be presented, “upcoded”25 claims;

3) Engaging in a pattern of submitting claims that the person knew or should have known were not medically necessary; and

4) Offering to transfer, or transferring, remuneration to any person eligible for Medicare or Medicaid benefits that was “likely to influence” such person to order or receive any reimbursable item or service.

Section 232 provides for a new civil monetary penalty for any physician who executes a false certification of eligibility to receive home health care. This penalty is the greater of $5,000 or three times the amount of payments for home health services made based on to the false certification.

Fraud Investigations and Prosecutions

Section 201 provides up to $104 million for health care fraud enforcement activities of the Department of Justice and HHS. This amount would increase by 15 percent each year through 2003. In addition, $47 million was appropriated to the Federal Bureau of Investigation in fiscal year 1997. That amount will rise gradually to $114 million in 2003. The end result of these increases will be more HHS and FBI agents and more assistant U.S. attorneys designated to work on health care fraud investigations and prosecutions.

Section 201 also requires HHS to establish a Medicare Integrity Program to be supported by the Medicare Part A Trust Fund. In fiscal year 1997, $430-440 million will be available for medical and utilization review, fraud review, cost report audits, recovery of improper payments, and education of providers and beneficiaries. This amount will rise gradually to $710-720 million in 2002.


Public Law 104-191 demonstrates that federal health care fraud enforcement efforts are continuing to grow. With more federal health crimes on the statute book, more civil monetary penalties and exclusion authorities available to HHS, and more federal agents and prosecutors assigned to health care fraud enforcement than ever before, now is the time for health care providers to monitor their compliance activities and obtain qualified legal advice early on if a problem arises. q

1 To be codified as 18 U.S.C. §24.
2 To be codified as 18 U.S.C. §1347.
3 18 U.S.C. §1344.
4 18 U.S.C. §§1341 and 1343.
5 To be codified as 18 U.S.C. §669.
6 To be codified as 18 U.S.C. §1035.
7 To be codified as 18 U.S.C. §1518.
8 18 U.S.C. §1510.
9 18 U.S.C. §1512.
10 To be codified as 42 U.S.C. §1320a-7b(a)(6).
11 18 U.S.C. §24.
12 18 U.S.C. §287.
13 18 U.S.C. §371.
14 18 U.S.C. §664.
15 18 U.S.C. §666.
16 18 U.S.C. §1001.
17 18 U.S.C. §1027.
18 18 U.S.C. §1341.
19 18 U.S.C. §1343.
20 18 U.S.C. §1954.
21 Under the terms of §205, an advisory opinion issued by HHS would not be binding on the Department of Justice. However, proving intent to defraud would be impossible in cases in which a provider truthfully disclosed all the material elements of a business transaction or arrangement to HHS in advance and then received an advisory opinion from HHS expressing no objections to the proposed transaction or arrangement.
22 On February 19, 1997, HHS published an interim final rule establishing the requirements for obtaining an advisory opinion. 62 Fed. Reg. 7350 (1997).
23 The term “exclusion” refers to an administrative action by HHS which precludes a particular individual or entity from participating in the Medicare or Medicaid programs for a specified time period. Exclusions are either “mandatory” or “permissive.” Prior to enactment of Public Law 104-191, mandatory exclusion was required by 42 U.S.C. §1320a-7(a) for individuals or entities convicted of 1) crimes related to the delivery of an item or service under the Medicare or Medicaid programs and 2) crimes relating to patient abuse or neglect. Permissive exclusion allows, but does not require, HHS to exclude a provider for the multiple grounds listed in 42 U.S.C. §1320a-7a(b).
24 Section 231 also states that “no proof of specific intent to defraud is required” to prove a “knowing” violation in order to impose a civil monetary penalty.
25 Section 231 defines “upcoding” as “presenting or causing to be presented a claim for an item or service that is based on a code that the person knows or should know will result in a greater payment to the person than the code the person knows or should know is applicable to the item or service actually provided.”

Kevin J. Darken practices white collar criminal defense, commercial litigation, and health care law with Trenam, Kemker, Scharf, Barkin, Frye, O’Neill & Mullis, P.A., Tampa. He served as an assistant United States attorney from 1991 to 1997, concentrating on health care fraud prosecutions, and was a member of the Department of Justice’s National Health Care Fraud Working Group. Mr. Darken graduated magna cum laude from Yale University and cum laude from Harvard Law School.

This column is submitted on behalf of the Health Law Section, Karen O. Emmanuel, chair, and Robert C. McCurdy, editor.

Criminal Law